[Viewpoint] It’s the EU FTA, stupid!The entire country is in an uproar over the ever-widening savings bank scandal. The more we learn about the scandal, the higher up it goes in governmental and bureaucratic circles.
The opposition party is having a field day and will undoubtedly use it as its main cudgel in next year’s elections. At the same time, the ruling party is busy building up its defenses and distancing itself from the government. Politicians and government officials are so wrapped up in the unfolding developments that they barely have any energy left to focus on more important issues, like the Free Trade Agreement between Korea and the European Union that goes into effect next month.
The deal - the second biggest FTA ever after the North American Free Trade Agreement - has the potential to reshape the country’s economic future, with authorities predicting the country’s gross domestic product can gain 5 percent growth a year in the long run. Despite all the fanfare around the signing, the government and politicians appear to have completely forgotten that such a pivotal trade pact is going into effect soon.
The ultimate goal of the free trade pact is to eliminate or phase out tariffs on all industrial and agricultural products traded between the two economies. Competition is about to get fierce in our trade with the EU. It’s going to be like a mixed martial arts battle in which contestants are allowed to employ all kinds of techniques and weapons without limits or safety shields. Without competence and strength, one contestant can be ruthlessly knocked out by the other.
The EU comprises 27 countries and is the largest single economic bloc on the planet, accounting for a third of global GDP. An FTA with the EU cannot be compared to similar deals with Chile, Singapore, India or Southeast Asian countries.
The FTA was stalled for a long time due to worries about the EU’s free access to a comparatively much smaller market such as ours. But it was an inevitable choice for an export-driven economy like ours to survive in the world economy, which is getting more and more globalized and integrated.
EU automakers are already gearing up to bulldoze into the domestic market. Volvo and Peugeot are slashing the prices of cars sold here to reflect the removal of tariffs. Mercedes Benz and BMW plan to join the price cuts. Various firms big and small, including names we’ve not heard of, are researching forays into the market.
How prepared are we to take the offensive in trade with the EU? Large companies appear to be well prepped. They plan to capitalize on free-market access to overtake Japan and China in the European market through price competitiveness.
Hyundai Motor aims to boost its market share in the EU to 5 percent by 2015 and outperform Japan’s Toyota to become the most successful Asian car company in Europe. Samsung Electronics and LG Electronics are expanding their plants in Eastern Europe to prepare for a surge in demand for their products.
But the medium and small companies are a different story. According to the Korea International Trade Association, the 10 top items exported to the EU take up 63 percent of the value of our exports, far exceeding the 49 percent rate for global trade, which implies the dominance of a few large companies in European trade. In a free trade environment, smaller companies have more room to grow and pioneer a niche market. The Korea Trade Promotion Corp. has studied and published promising areas and items where Korean companies can succeed in Europe, such as beauty equipment and industrial gloves.
The FTA could be a windfall for Korean companies as they steal back European business that the Chinese are now dominating.
So far, small- and mid-sized companies are showing less enthusiasm about the opening of the EU market. Companies that export more than 6,000 euros ($8,700) per shipment to the EU can get an export license from authorities to receive the tariff-free benefits. But of the 4,333 companies that qualify for the license, only 1,026, or 23.7 percent, have secured certification. Most haven’t done so because they lack information. If this continues, the fruits of the bilateral FTA will be enjoyed only by large companies.
The EU has been requiring export certification since 1975, so small companies doing business in Europe are well prepared. The government should be more aggressive to get smaller companies to jump into the EU market. Japan is speeding up its EU FTA talks as well. We may not have a lot of time to make our mark in that market.
*The writer is the JoongAng Ilbo’s senior report on industrial news.
By Cha Jin-yong